CGS-CIMB Research analyst William Tng is keeping his “add” call on Aztech Global as he sees the prospect of earnings growth for the company.
The analyst has, however, lowered his earnings per share (EPS) estimates for the FY2022 to FY2024 by 2.2% to 5.9% on the back of potential risks of margin pressures.
The lower EPS estimates come as Tng lowers his gross profit margin assumptions for the period given the higher operating costs from the Covid-19-related disruptions in China, inflationary cost pressures and slowing economic growth.
“We think Aztech’s net margins could slip as the company is a key supplier for the Blink products, and we believe that Aztech will take a long-term view on its customer relationships,” says Tng in his July 18 report.
“In 1QFY2022, Aztech’s net profit margin fell 0.69 percentage points (ppt) q-o-q and 0.53 ppt y-o-y to 10.86%,” the analyst notes.
While Tng’s revenue forecasts for the FY2022 to FY2024 are unchanged, he has lowered his gross profit margin assumptions by 0.30% to 0.80% ppt, leading to a 0.26% to 0.70% ppt decline in his net profit margin assumptions over the FY2022 to FY2024.
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Accordingly, Tng’s target price is lowered to $1.16 from $1.59 previously.
The new target price is based on the average forward P/E of 9.1x over March 2021 to June from the previous sector average P/E of 12.0x. The lower average forward P/E is due to the current uncertain economic outlook.
The new target price was also affected by the 4.1% reduction in Tng’s EPS estimate for the FY2023.
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To Tng, potential new customer w ins and earlier easing of component tightness would be re-rating catalysts for the counter while component shortages and Covid19 related supply chain disruptions are downside risks.
Aztech Global will announce its results for the 1HFY2022 ended June after the market closes on July 25.
Referring to its performance in the 1HFY2021 as a guide, where the company’s revenue and net profit made up 40.0% of its FY2021 numbers, Tng is expecting Aztech Global to see a 22.1% y-o-y increase in revenue of $304.0 million in the 1HFY2022 and a 15.7% y-o-y growth in net profit of $34.0 million for the same period.
As at 11.07am, shares in Aztech Global are trading 1 cent higher or 1.27% up at 79.5 cents.
